What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-06 · 410 added, 305 removed, 1300 unchanged (35% of the section changed)

8 unchanged sentences

Among factors that could cause actual results to differ adversely are:

• the development, course and duration of the COVID-19 pandemic and the governmental and private actions taken in response, the effectiveness, acceptance and distribution of COVID-19 vaccines and therapeutics, and the global consequences of the pandemic and such actions, including their impact on the factors listed below;

• changes in inflation, interest rates, the world’s credit markets or segments thereof, credit spreads or general economic conditions;

• consequences of the conflict in Ukraine, including economic sanctions, volatility in energy prices, and the potential for increased cyberattacks;

• changes in the world’s credit markets, segments thereof, interest rates, inflation, credit spreads or general economic conditions;

• developments in the world’s financial and capital markets that adversely affect insured obligors’ repayment rates, Assured Guaranty’s insurance loss or recovery experience, investments of Assured Guaranty or assets it manages;

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• the possibility that budget or pension shortfalls or other factors will result in credit losses or impairments on obligations of state, territorial and local governments and their related authorities and public corporations that Assured Guaranty insures or reinsures;

• insured losses in excess of those expected by Assured Guaranty or the failure of Assured Guaranty to realize loss recoveries that are assumed in its expected loss estimates for insurance exposures, including as a result of the failure to resolve Assured Guaranty’s Puerto Rico exposures in a manner substantially consistent with the support agreements signed to date;

• insured losses in excess of those expected by Assured Guaranty or the failure of Assured Guaranty to realize loss recoveries that are assumed in its expected loss estimates for insurance exposures, including as a result of the failure to resolve Assured Guaranty’s exposures to Puerto Rico (Puerto Rico or the Commonwealth) in a manner substantially consistent with the support agreements signed to date;

• increased competition, including from new entrants into the financial guaranty industry;

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• natural or man-made catastrophes or pandemics;

• other risk factors identified in AGL’s filings with the United States (U.S.) Securities and Exchange Commission (the SEC);

• other risk factors identified in AGL’s filings with the United States (U.S.) Securities and Exchange Commission (SEC);

• other risks and uncertainties that have not been identified at this time;

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Premiums are earned over the contractual lives, or in the case of homogeneous pools of insured obligations, the remaining expected lives, of financial guaranty insurance contracts.

In the Asset Management segment, the Company provides investment advisory services, which include the management of CLOs, opportunity and liquid strategy funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down.

In the Asset Management segment, the Company provides investment advisory services, which include the management of collateralized loan obligations (CLOs), opportunity and liquid strategy funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down.

Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM) have managed structured, public finance and credit investments since 2003.

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The establishment, in the fourth quarter of 2019, of the Asset Management segment diversifies the risk profile and revenue opportunities of the Company.

As of March 31, 2022, AssuredIM had $17.0 billion of assets under management (AUM), including $1.4 billion that is managed on behalf of Assured Guaranty Municipal Corp.

As of June 30, 2022, AssuredIM had $17.9 billion of assets under management (AUM), including $1.3 billion that is managed on behalf of Assured Guaranty Municipal Corp.

(AGM) and Assured Guaranty Corp.

Fees in respect of investment advisory services are the largest component of revenues for the Asset Management segment.

AssuredIM is compensated for its investment advisory services generally through management fees which are based on AUM, and may also earn performance fees calculated as a percentage of net profits or based on an internal rate of return referencing distributions made to investors, in each case, in respect of funds, collateralized loan obligations (CLOs) and/or accounts which it advises.

The Corporate division consists primarily of interest expense on the debt of Assured Guaranty US Holdings Inc.

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Economic activity in the U.S.

and throughout the world expanded in 2021 and in the three month period ended March 31, 2022 (First Quarter 2022).

According to the advance estimate released by the U.S.

Bureau of Economic Analysis (BEA), real gross domestic product (GDP) increased at an annual rate of 6.9% in the fourth quarter of 2021.

Although an advance estimate released by the BEA showed that GDP decreased 1.4% in First Quarter 2022, the primary reason was reported to be as a result of trade, since net imports increased as supply chains improved and businesses continued to restock.

More granular measures were positive, with a 4.7% increase in consumer spending and a 5.7% increase in business investment.

At the end of March 2022, the U.S.

unemployment rate, seasonally adjusted, stood at 3.6%, lower than where it started the quarter at 3.9%, and down from a pandemic high of 14.7% in April 2020.

More globally, the Organization for Economic Co-operation and Development (OECD) estimates that GDP in the OECD area increased by 5.1% during 2021, with U.K.

GDP estimated to have grown by 6.9% for the year, in each case after experiencing material contraction in 2020.

and in Europe showed signs of weakness in the three-month period ended June 30, 2022 (second quarter 2022).

According to the U.S.

Bureau of Economic Analysis (BEA), after decreasing 1.6% in the first quarter of 2022, in second quarter 2022 real gross domestic product (GDP) decreased for a second straight quarter, this time at an annual rate of 0.9%.

Two straight quarters of GDP decline is a common definition for a recession.

At the end of June 2022, the U.S.

unemployment rate, seasonally adjusted, stood at 3.6%, unchanged from the end of March 2022, and down from a pandemic high of 14.7% in April 2020.

More globally, the Organization for Economic Co-operation and Development (OECD) estimates that GDP in the OECD area increased by 0.7% in the first quarter of 2022 on a quarter-over-quarter basis (the latest data available), with U.K.

GDP estimated to have grown by 0.7% on a quarter-over-quarter basis.

The Company believes a more robust economy makes it less likely that obligors whose obligations it guarantees will default.

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Bureau of Labor Statistics, the inflation rate in the U.S.

over the 12-month period ending March 2022 (the latest data available), as measured by the consumer price index for all urban consumers, rose to 8.5% before seasonal adjustment, the highest since December of 1981.

The energy index rose 32% and the food index 8.8% over the same 12-month period, the most since the period ending May 1981.

According to the U.K.’s Office for National Statistics (ONS), the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 6.2% in the 12 months ending March 2022, up from 5.5% in the 12 months ending February 2022 and 1.0% in the 12 months ending March 2021.

over the 12-month period ending June 2022, as measured by the consumer price index (CPI) for all urban consumers, rose to 9.1% before seasonal adjustment, the largest 12-month rate since the period ending November 1981.

The energy index rose 41.6% over the 12 months ended June 2022.

The food index rose 10.4% over the same period, the largest 12-month rate since the period ending February 1981.

According to the U.K.’s Office for National Statistics (ONS), the CPI including owner occupiers’ housing costs (CPIH) was 8.2% in the 12 months ending June 2022, up from 7.9% in May 2022 and 6.2% in March 2022.

Consumer price inflation does not impact the Company’s primary businesses directly, but may impact the Company indirectly to the extent it makes it more difficult for obligors to make their debt payments or causes interest rates to rise more generally.

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public finance.

The 30-year AAA MMD rate started First Quarter 2022 at 1.49% but rose more than 100 basis points (bps) to end the quarter at 2.53%.

The average rate for the quarter was 2.00%, above the 1.54% average for 2021.

With the onset of the COVID-19 pandemic, the Federal Open Market Committee (FOMC) lowered the target range

for the federal funds rate to 0% to 0.25% in March 2020.

However, at the FOMC’s meeting in March 2022, the FOMC decided to raise the target range for the federal funds rate to 0.25% to 0.50%, stating that it anticipated that ongoing increases in the target range will be appropriate.

In addition, the FOMC said that it expected to begin reducing its holdings of treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.

At the conclusion of its May 3-4, 2022 meeting, the FOMC again raised the federal funds target range, this time to 0.75% to 1%, reiterating that it anticipated that ongoing increases in the target range would be appropriate.

In addition, the FOMC announced that it would begin reducing its holdings of treasury securities and agency debt and agency mortgage-backed securities on June 1, 2022.

The level and direction of interest rates impact the Company in numerous ways.

For example, higher interest rates may make the Company’s credit enhancement products more attractive in the market and increase the level of premiums it can charge for that product, and, over time, also increase the amount the Company can earn on its largely fixed-income investment portfolio.

Specifically, the level of interest rates on the U.S.

municipal bonds the Company enhances influences how high a premium the Company can charge for its public finance financial guaranty insurance product, with higher interest rates generally increasing the premium rates the Company may charge.

The 30-year AAA MMD rate started second quarter 2022 at 2.53% but rose 65 basis points (bps) to end the quarter at 3.18%.

The average rate for the quarter was 3.05%, considerably above the 2.00% average for the first quarter of 2022 and 1.54% average for full year 2021.

With the onset of the COVID-19 pandemic, the Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate to 0% to 0.25% in March 2020.

However, with the FOMC acknowledging inflationary pressure building, the FOMC decided at its meeting in March 2022 to

start again raising the target range for the federal funds rate, and has continued to do so since then.

In addition, the FOMC has stated that it would reduce its holdings of treasury securities and agency debt and agency mortgage-backed securities.

At the conclusion of its June 14-15, 2022 meeting the FOMC raised the federal funds target rate by 75 basis points to 1.5% to 1.75% .

Then, at the conclusion of its July 26-27, 2022 meeting, the FOMC raised the federal funds rate by another 75 basis points to a target range of 2.25% to 2.50%, indicating that ongoing increases in the target rate would be appropriate.

The level and direction of interest rates and credit spreads impact the Company in numerous ways.

For example, higher interest rates (when accompanied by wider spreads) may make the Company’s credit enhancement products more attractive in the market and increase the level of premiums it can charge for those products, and, over time, also increase the amount the Company can earn on its largely fixed-income investment portfolio.

Specifically, the level of interest rates and spreads on the U.S.

municipal bonds the Company enhances influences how high a premium the Company can charge for its public finance financial guaranty insurance product, with higher interest rates and spreads generally increasing the premium rates the Company may charge.

On the other hand, high interest rates decrease the amount of excess spread available to support the distressed residential mortgage-backed securities (RMBS) the Company insures and reduce the market value of its largely fixed rate fixed-maturity securities in the investment portfolio.

The Company believes further increases in interest rates and spreads in 2022, should it occur, could increase demand for insurance and permit it to increase its premium rates on new business.

The difference, or credit spread, between the 30-year A-rated general obligation relative to the 30-year AAA MMD averaged 39 bps in First Quarter 2022 up from 33 bps in 2021 but still below the 42 bps in 2020.

BBB credit spreads measured on the same basis averaged 72 bps in First Quarter 2022, up modestly from the 70 bps in full year 2021.

The level of credit spreads also influences how high a premium the Company can charge for its financial guaranty insurance product, with tighter credit spreads generally lowering the premium rates the Company may charge.

Home prices continued their recent surge in the First Quarter of 2022.

According to the National Association of Realtors, the median existing-home price for all housing types in March 2022 was $375,300, a 15% year-over-year increase and up from $358,000 in December 2021.

Existing home sales were 5.8 million in March 2022, up 4.5% year over year.

Higher interest rates may also dampen municipal bond issuance and negatively impact the finances of some of the obligors whose payments the Company insures.

The difference, or credit spread, between the 30-year A-rated general obligation relative to the 30-year AAA MMD averaged 56 bps in second quarter 2022, up from 39 bps in the first quarter of 2022 and 33 bps in full year 2021.

BBB credit spreads measured on the same basis averaged 90 bps in second quarter 2022, up from 72 bps in the first quarter of 2022 and 70 bps in full year 2021.

home prices continued their recent surge in second quarter 2022.

According to the National Association of Realtors, the median existing-home price for all housing types in June 2022 was $416,000, a new record high and a 13.4% year-over-year increase.

However, existing home sales declined for the fifth straight month to a seasonally adjusted annual rate of 5.1 million and sales were down 5.4% from May 2022 and 14.2% from one year ago.

The S&P CoreLogic Case-Shiller U.S.

National Home Price NSA Index, covering all nine U.S.

census divisions, reported an 19.8% annualized gain in February 2022 (the latest data available), compared to 19.1% in the previous month.

The 10-City Composite annual increase came in at 18.6%, compared to 17.3% in the previous month.

The 20-City Composite posted an 20.2% year-over-year gain, compared to 18.9% in the previous month.

census divisions, reported a 19.7% annual gain in May 2022 (the latest data available), down from 20.6% in the previous month.

The 10-City Composite annual increase came in at 19.0%, down from 19.6% in the previous month.

The 20-City Composite posted a 20.5% year-over-year gain, down from 21.2% in the previous month.

Home prices in the U.S.

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Impact of COVID-19

Variants of COVID-19 continue to spread throughout the world, while the production, acceptance, and distribution of vaccines and therapeutics for it are proceeding unevenly across the globe.

Variants of COVID-19 continue to spread throughout the world, while the production, acceptance, and distribution of vaccines and therapeutics for COVID-19 are proceeding unevenly across the globe.

The emergence of COVID-19 and reactions to it, including various intermittent closures and capacity and travel restrictions, have had a profound effect on the global economy and financial markets.

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Currently, the Company is pursuing the following key business strategies in three areas:

(1) insurance, (2) asset management and alternative investments, and (3) capital management.

(1) insurance;

(2) asset management and alternative investments;

and (3) capital management.

The Company seeks to grow the insurance business through new business production, acquisitions of remaining legacy monoline insurers or reinsurance of their insured portfolios, and to continue to mitigate losses in its current insured portfolio.

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• allows smaller, less well-known issuers to gain market access on a more cost-effective basis.

On the other hand, the persistently low interest rate environment and relatively tight U.S.

municipal credit spreads have dampened demand for bond insurance compared to the levels before the financial crisis that began in 2008.

The Company believes that if interest rates further increase in 2022, demand for bond insurance may improve.

The low interest rate environment and tight U.S.

municipal credit spreads from when the financial crisis began in 2008 through early 2020 dampened demand for bond insurance compared to the levels before the financial crisis that began in 2008.

More recently, uncertainty related to the COVID-19 pandemic and then rising interest rates improved demand for financial guaranty insurance.

The Company believes that, if interest rates and credit spreads further increase in 2022, demand for bond insurance may improve.

In certain segments of the global infrastructure and structured finance markets the Company believes its financial guaranty product is competitive with other financing options.

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Based on Sale Date

First Quarter 2022 First Quarter 2021 Year Ended December 31, 2021

Six Months 2022 Six Months 2021 Year Ended December 31, 2021

(dollars in billions, except number of issues and percentages)

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• On January 18, 2022, the Federal District Court of Puerto Rico, acting under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), entered an order and judgment confirming the Modified Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, and the Puerto Rico Public Buildings Authority (GO/PBA Plan).

The GO/PBA Plan restructured approximately $35 billion of debt (including the Puerto Rico General Obligation (GO) and Public Buildings Authority (PBA) bonds insured by the Company) and other claims against the government of Puerto Rico and certain entities as well as $50 billion in pension obligations (none of which pension obligations are insured by the Company), all consistent with the terms of the settlement embodied in a revised GO and PBA plan support agreement (PSA) entered into by AGM and AGC on February 22, 2021, with certain other stakeholders, the Commonwealth, and the financial oversight and management board (the FOMB) (GO/PBA PSA).

The GO/PBA Plan restructured approximately $35 billion of debt (including the Puerto Rico General Obligation (GO) and Public Buildings Authority (PBA) bonds insured by the Company) and other claims against the government of Puerto Rico and certain entities as well as $50 billion in pension obligations (none of the pension obligations are insured by the Company), all consistent with the terms of the settlement embodied in a revised plan support agreement (PSA) for GO and PBA entered into by AGM and AGC on February 22, 2021, with certain other stakeholders, the Commonwealth, and the financial oversight and management board (the FOMB) (GO/PBA PSA).

• On January 20, 2022, the Federal District Court of Puerto Rico, acting under Title VI of PROMESA, entered an order under Title VI of PROMESA (PRCCDA Modification) modifying the debt of the Puerto Rico Convention Center District Authority (PRCCDA).

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The Company has sold some of the new recovery bonds and CVIs it received and may continue to sell amounts it still retains, subject to market conditions.

The fair value of such securities held by the Company as of March 31, 2022, is included in the lines “fixed-maturity securities - Puerto Rico, available-for-sale” and “fixed-maturity securities - Puerto Rico, trading” in the table “Investment Portfolio Carrying Value” of Item 1, Financial Statements, Note 7, Investments.

The Company is and has for several years been working with the servicers of some of the RMBS it insures to encourage the servicers to provide alternatives to distressed borrowers that will encourage them to continue making payments on their loans to help improve the performance of the related RMBS.

The fair value of such securities held by the Company as of June 30, 2022, is included in the lines “fixed-maturity securities - Puerto Rico, available-for-sale” and “fixed-maturity securities - Puerto Rico, trading” in the table “Investment Portfolio Carrying Value” of Item 1, Financial Statements, Note 7, Investments.

On May 5, 2021, AGC and AGM entered into a plan support agreement with respect to Puerto Rico Highways and Transportation Authority (PRHTA) with certain other stakeholders, the Commonwealth, and the FOMB (the HTA PSA).

On May 2, 2022, the FOMB took the first step in the process of effecting the resolution contemplated in the HTA PSA by filing with the Title III Court a plan of adjustment for PRHTA (HTA Plan) which it believes to be consistent with the HTA PSA.

Voting on the HTA Plan was completed on July 27, 2022, and the Title III Court has set August 17 – 18, 2022 for the confirmation hearing on the HTA Plan.

On July 8, 2022, the Company received from the Commonwealth, pursuant to the GO/PBA Plan and the terms of the HTA PSA, $147 million of cash and $668 million original notional of CVI.

Assuming the HTA Plan essentially as currently constituted is confirmed and implemented, the Company also expects to receive additional recoveries upon that implementation.

The Company continues to work to resolve its remaining unresolved defaulted Puerto Rico exposure, Puerto Rico Electric Power Authority (PREPA).

Currently, the Company is engaged in mediation with respect to the exposure.

The Company is and has for several years been working with the servicers of some of the RMBS transactions it insures to encourage the servicers to provide alternatives to distressed borrowers that will encourage them to continue making payments on their loans to help improve the performance of the related RMBS.

In some instances, the terms of the Company’s policy give it the option to pay principal on an accelerated basis on an obligation on which it has paid a claim, thereby reducing the amount of guaranteed interest due in the future.

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AssuredIM is a diversified asset manager that serves as investment adviser to CLOs, opportunity and liquid strategy funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down.

As of March 31, 2022, AssuredIM was a top 25 CLO manager by AUM, as published by Creditflux Ltd.

As of June 30, 2022, AssuredIM was a top 25 CLO manager by AUM, as published by Creditflux Ltd.

AssuredIM is actively pursuing opportunity strategies focused on healthcare and asset-based lending and liquid strategies relating to municipal obligations.

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These operating metrics include, but are not limited to, funded AUM and unfunded capital commitments (together, AUM) and investment advisory management and performance fees.

The Company considers the categorization of its AUM by product type to be a useful lens in monitoring the Asset Management segment.

The Company considers the categorization of its AUM by product type to be a

useful lens in monitoring the Asset Management segment.

AUM by product type assists in measuring the duration of AUM for which the Asset Management segment has the potential to earn management fees and performance fees.

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Additionally, the Company believes that AssuredIM provides the Company an opportunity to deploy excess capital at attractive returns improving the risk-adjusted return on a portion of the investment portfolio and potentially increasing the amount of dividends certain of its insurance subsidiaries are permitted to pay under applicable regulations.

The Company allocated $750 million of capital to invest in funds managed by AssuredIM plus $550 million of the AGM, AGC and, until its merger with AGM on April 1, 2021, MAC, (collectively, the U.S.

Insurance Subsidiaries) invested assets now managed by AssuredIM under an Investment Management Agreement (IMA).

The Company allocated $750 million of capital to invest in funds managed by AssuredIM, plus $550 million aggregate of investment assets of AGM, AGC and, until its merger with AGM on April 1, 2021, Municipal Assurance Corp.

(MAC), (collectively, the U.S.

Insurance Subsidiaries) to be managed by AssuredIM under an Investment Management Agreement (IMA).

The Company is using these allocations to:

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and (b) enhance the returns of its own investment portfolio.

As of March 31, 2022, AG Asset Strategies LLC (AGAS) had committed $702 million to funds managed by AssuredIM (AssuredIM Funds), including $229 million that has yet to be funded.

Adding inception-to-date distributed gains to the original $750 million allocation, the U.S.

Insurance Subsidiaries may invest a total of up to $810 million in funds managed by AssuredIM (AssuredIM Funds) through their jointly owned investment subsidiary, AG Asset Strategies LLC (AGAS).

As of June 30, 2022, AGAS had committed $757 million to AssuredIM Funds, including $241 million that has yet to be funded.

This capital was committed to several funds, each dedicated to a single strategy including CLOs, asset-based finance, healthcare structured capital and municipal bonds.

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The Company has developed strategies to efficiently manage capital within the Assured Guaranty group.

From 2013 through May 5, 2022, the Company has repurchased 135.8 million common shares for approximately $4,374 million, representing approximately 70.0% of the total shares outstanding at the beginning of the repurchase program in 2013.

On February 23, 2022, the AGL Board of Directors (the Board) authorized the repurchase of an additional $350 million of common shares.

Under this and previous authorizations, as of May 5, 2022, the Company was authorized to purchase $240 million of its common shares.

From 2013 through August 3, 2022, the Company has repurchased 138 million common shares for approximately $4.5 billion, representing approximately 71% of the total shares outstanding at the beginning of the repurchase program in 2013.

On August 3, 2022, the AGL Board of Directors (the Board) authorized the repurchase of an additional $250 million of common shares.

Under this and previous authorizations, as of August 3, 2022, the Company was authorized to purchase $365 million of its common shares.

Shares may be repurchased from time to time in the open market or in privately negotiated transactions.

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2022 (First Quarter) 155 2.738 56.62

2022 (through May 5) 61 1.0 59.86

2022 (Second Quarter) 151 2.606 58.03

2022 (through August 3) 35 0.623 55.89

Cumulative repurchases since the beginning of 2013 $ 4,499 137.994 32.61

Accretive Effect of Cumulative Repurchases (1)

First Quarter 2022 As of March 31, 2022

Net income (loss) attributable to AGL $ 0.51

Adjusted operating income 0.75

Shareholders’ equity attributable to AGL $ 38.45

Adjusted operating shareholders' equity 39.16

Adjusted book value 68.20

_________________

(1) Represents the estimated accretive effect of cumulative repurchases since the beginning of 2013.

As of June 30, 2022, the estimated accretive effect of the cumulative repurchases of common shares since the beginning of 2013 was approximately:

$35.92 per share in shareholders’ equity attributable to AGL, $39.69 per share in adjusted operating shareholders’ equity, and $70.39 per share in adjusted book value.

The Company considers the appropriate mix of debt and equity in its capital structure.

On May 26, 2021, the Company issued $500 million of 3.15% Senior Notes, due in 2031 for net proceeds of $494 million.

On July 9, 2021, a portion of the proceeds from the issuance of the 3.15% Senior Notes were used to redeem $200 million of AGMH debt as follows:

On July 9, 2021, a portion of the proceeds from the issuance of the 3.15% Senior Notes was used to redeem $200 million of AGMH debt as follows:

all $100 million of AGMH’s 6 7/8% Quarterly Interest Bonds due in 2101, and $100 million of the $230 million of AGMH’s 6.25% Notes due in 2102.

On August 20, 2021, the Company issued $400 million of 3.6% Senior Notes, due in 2051 for net proceeds of $395 million.

On September 27, 2021, all of the proceeds from the issuance of the 3.6% Senior Notes were used to redeem $400 million of AGMH and AGUS debt as follows:

On September 27, 2021, all of the proceeds from the issuance of the 3.6% Senior Notes were used to redeem

$400 million of AGMH and AGUS debt as follows:

all $100 million of AGMH’s 5.60% Notes due in 2103;

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Municipal Assurance Corp.

On April 1, 2021, Municipal Assurance Corp.

(MAC) merged with and into AGM, with AGM as the surviving company.

On April 1, 2021, MAC merged with and into AGM, with AGM as the surviving company.

Upon the merger all direct insurance policies issued by MAC became direct insurance obligations of AGM.

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Financial Results

First Quarter

(in millions, except per share amounts)

Second Quarter Six Months

2022 2021 2022 2021

Net income (loss) attributable to AGL $ (47) $ 98 $ 19 $ 109

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Present value of new business production (PVP) (2)

76 81 145 167

Gross par written 6,695 6,137 11,166 11,609

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Inflows - intercompany 154 — 154 109

As of March 31, 2022 As of December 31, 2021

As of June 30, 2022 As of December 31, 2021

Amount Per Share Amount Per Share

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____________________

(1) Relates to the effect of consolidating FG VIEs and CIVs.

(1) In periods where the Company recognized a net loss, the impact of potentially dilutive outstanding stock-based awards was excluded from the calculation of diluted loss per share as their inclusion would have an antidilutive effect.

(2) See “—Non-GAAP Financial Measures” for a definition of the financial measures that were not determined in accordance with accounting principles generally accepted in the United States of America (GAAP), a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure, if available, and for additional details.

(3) Relates to the effect of consolidating FG VIEs and CIVs.

(4) See “— Overview— Key Business Strategies – Capital Management” above for information on common share repurchases.

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Condensed Consolidated Results of Operations

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in millions)

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Foreign exchange gains (losses) on remeasurement (71) 5 (101) 5

Fair value gains (losses) on trading securities (18) — (22) —

Other income (loss) 10 6 13 6

Total revenues 90 196 390 373

Loss and LAE 57 30

Loss and LAE (benefit) (11) (16) 46 14

Interest expense 20 23 40 44

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Net income (loss) attributable to Assured Guaranty Ltd.

$ (47) $ 98 $ 19 $ 109

Effective tax rate (12.9) % 18.5 % 30.3 % 16.5 %

Net income attributable to AGL for First Quarter 2022 was higher compared with the three month period ended March 31, 2021 (First Quarter 2021) primarily due to:

• higher net earned premiums of $214 million in First Quarter 2022 compared with $103 million in First Quarter 2021,

• fair value gains on CCS in First Quarter 2022 compared with losses in First Quarter 2021, and

• lower fair value losses on credit derivatives in First Quarter 2022 compared with First Quarter 2021.

These increases were offset in part by:

• foreign exchange losses on remeasurement in First Quarter 2022,

• higher loss expense in First Quarter 2022 compared First Quarter 2021, and

Second Quarter 2022 Compared with Second Quarter 2021

Net income attributable to AGL was a loss for second quarter 2022 compared with income in the three month period ended June 30, 2021 (second quarter 2021) primarily due to:

• foreign exchange losses on remeasurement in second quarter 2022,

• realized and unrealized losses on the investment portfolio reported in realized gains (losses) on investments and trading gains (losses),

• prior year gains in equity method alternative investments that did not recur, and

• lower net earned premiums.

These decreases were offset in part by:

• fair value gains on credit derivatives and CCS in second quarter 2022 compared with losses second quarter 2021.

Six Months 2022 Compared with Six Months 2021

Net income attributable to AGL for the six month period ended June 30, 2022 (six months 2022) was lower compared with the six month period ended June 30, 2021 (six months 2021) primarily due to:

• foreign exchange losses on remeasurement in six months 2022,

• realized and unrealized losses on the investment portfolio reported in realized gains (losses) on investments and trading gains (losses), and

• losses in equity method alternative investments.

These decreases were offset in part by:

• higher net earned premiums mainly attributable to accelerations on certain Puerto Rico exposures, and

• fair value gains on credit derivatives, FG VIEs and CCS in six months 2022 compared with losses in six months 2021.

The Company’s effective tax rate reflects the proportion of income recognized by each of the Company’s operating subsidiaries, with U.S.

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controlled foreign corporation.

The effective tax rate in First Quarter 2022 was higher than in First Quarter 2021 due primarily to differences in the portion of income generated by various jurisdictions.

The effective tax rate in six months 2022 was higher than in six months 2021 due primarily to differences in the portion of income generated by various jurisdictions.

Adjusted Operating Income

Adjusted operating income in First Quarter 2022 was $90 million, compared with $43 million in First Quarter 2021.

The increase was primarily attributable to higher insurance segment adjusted operating income due to the March Puerto Rico Resolutions.

Adjusted operating income in second quarter 2022 was $30 million, compared with $120 million in second quarter 2021.

The decrease was primarily attributable to losses in equity method alternative investments (compared with gains in second quarter 2021), lower net earned premiums, losses on the trading investment portfolio and lower fair value gains on consolidated investment vehicles.

Adjusted operating income in for six months 2022 was $120 million, compared with $163 million in six months 2021.

The decrease was primarily attributable to losses in equity method alternative investments, higher loss expense, losses on the trading investment portfolio and lower fair value gains on consolidated investment vehicles, which were partially offset by higher net earned premiums due to higher refundings related to the March Puerto Rico Resolutions.

See “— Results of Operations — Reconciliation to GAAP” below.

Book Value and Adjusted Book Value

Shareholders’ equity attributable to AGL declined mainly due to unrealized losses on the available-for-sale fixed-maturity investment portfolio that were a result of higher interest rates and share repurchases.

Shareholders’ equity attributable to AGL declined mainly due to unrealized losses on the available-for-sale fixed-maturity investment portfolio that were caused by higher interest rates, and share repurchases.

Adjusted operating shareholders’ equity and adjusted book value declined from December 31, 2021, mainly due to share repurchases and dividends, partially offset, in the case of adjusted book value, by net written premiums on new business production.

Shareholder’s equity attributable to AGL per share, adjusted operating shareholders’ equity per share and adjusted book value per share were $89.20, $90.09 and $133.21, respectively as of March 31, 2022.

Shareholder’s equity attributable to AGL per share, adjusted operating shareholders’ equity per share and adjusted book value per share were $84.89, $90.18 and $134.91, respectively as of June 30, 2022.

Shareholders’ equity per share declined primarily due to unrealized losses on the available-for-sale fixed maturity portfolio.

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In the case of adjusted book value per share, net premiums written in the Insurance segment also contributed to the increase compared with December 31, 2021.

See “— Overview — Key Business Strategies , Accretive Effect of Cumulative Repurchases” table above.

See “— Overview — Key Business Strategies..

See “— Non-GAAP Financial Measures” below for the reconciliation of shareholders’ equity attributable to AGL to adjusted operating shareholders' equity and adjusted book value.

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Russia’s Invasion of Ukraine

Russia’s invasion of Ukraine has led to the imposition of economic sanctions by many western countries against Russia and certain Russian individuals, dislocation in global energy markets, massive refugee movements, and probable default by certain Russian credits.

The economic sanctions imposed by western governments, along with decisions by private companies regarding their presence in Russia, continue to reduce western economic ties to Russia and to reshape global economic and political ties more generally, and the Company cannot predict all of the potential effects of the conflict on the world or on the Company.

The Company’s surveillance and treasury functions have reviewed the Company’s insurance and investment portfolios, respectively, and have identified no material direct exposure to Ukraine or Russia.

In fact, the Company’s direct insurance exposure to eastern Europe generally is limited to approximately $327 million in net par outstanding as of March 31, 2022, comprising $255 million net par exposure to the sovereign debt of Poland and $72 million net par exposure to a toll road in Hungary.

In fact, the Company’s direct insurance exposure to eastern Europe generally is limited to approximately $297 million in net par outstanding as of June 30, 2022, comprising $229 million net par exposure to the sovereign debt of Poland and $68 million net par exposure to a toll road in Hungary.

The Company rates the toll road exposure below-investment-grade (BIG).

As described above under "Overview -- Economic Environment", by some measures consumer inflation in the U.S.

As described above under "Overview -- Economic Environment", by some key measures consumer inflation in the U.S.

has been higher in the last few months than it has been in decades, and interest rates generally have increased.

The Federal Reserve Board has raised interest rates a few times and communicated its intention to further raise them in the future.

Concerns have been expressed in the financial press about inflation taking hold in the economy.

Inflation and higher interest rates could impact the Company in numerous ways.

While consumer price inflation does not impact the Company’s primary businesses directly, it may impact the Company indirectly to the extent it makes it more difficult for obligors to make their debt payments, and accompanying higher interest rates could impact the Company in several ways.

For example, higher interest rates might make the Company’s credit enhancement products more attractive in the market and increase the level of premiums it can charge for that product, and, over time, also increase the amount the Company can earn on its largely fixed-maturity investment portfolio.

On the other hand, high interest rates would decrease the amount of excess spread available to support the distressed RMBS the Company insures, would reduce the market value of its largely fixed rate fixed maturity investment portfolio and may make it more difficult for obligors to repay obligations the Company guarantees.

The Federal Reserve Board has communicated its intention to raise interest rates, and the Company believes further increases in interest rates and spreads in 2022, should they occur, could increase demand for insurance and permit the Company to increase its premium rates on new business, although there can be no assurance that this would occur.

On the other hand, high interest rates decrease the amount of excess spread available to support the distressed RMBS the Company insures and reduce the market value of its largely fixed rate fixed maturity investment portfolios.

ICE Benchmark Administration (IBA) and U.K.

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president signed into law the Adjustable Interest Rate (LIBOR) Act (the LIBOR Act) which provides, among other things, a transition to the Secured Overnight Finance Rate (SOFR) as a benchmark replacement for LIBOR-based contracts that do not have adequate fallback language or a replacement rate is not selected by a determining person.

The LIBOR Act eliminates the need to seek amendments to our LIBOR-based contracts that do not contain adequate fallback language.

The LIBOR Act eliminates the need to seek amendments to LIBOR-based contracts that do not contain adequate fallback language.

New York and other states have also passed legislation similar to the LIBOR Act.

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The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment and require the Company to make estimates and assumptions, based on available information, that affect the amounts of assets, liabilities, revenues and expenses reported in the financial statements.

The inputs into our estimates and assumptions consider the economic implications of COVID-19.

The inputs into the Company’s estimates and assumptions consider the economic implications of COVID-19.

Estimates are inherently subject to change and actual results could differ from those estimates, and the differences may be material to the Consolidated Financial Statements.

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There can be no assurance that actual results will conform to estimates and assumptions and that reported results of operations will not be materially affected by the need to make future accounting adjustments to reflect changes in these estimates and assumptions from time to time.

The accounting policies that the Company believes are the most dependent on the application of judgment, estimates and assumptions are listed below.

Item 8, Financial Statements and Supplementary Data, Note 1, Business and Basis of Presentation, of the Company’s 2021 Annual Report on Form 10-K, for the Company’s significant accounting policies which includes a reference to the note where further details regarding the significant estimates and assumptions are provided, as well as Part II.

The accounting policies that the Company believes are most dependent on the application of judgment, estimates and assumptions are listed below.

Item 8, Financial Statements and Supplementary Data, Note 1, Business and Basis of Presentation, of the Company’s 2021 Annual Report on Form 10-K, for the Company’s significant accounting policies which includes a reference to the applicable note where further details regarding the significant estimates and assumptions are provided, as well as Part II.

Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s 2021 Annual Report on Form 10-K, for further details regarding sensitivity analysis.

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Insurance Segment Results

First Quarter

(in millions)

Second Quarter Six Months

2022 2021 2022 2021

Segment revenues

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Net investment income 66 71 129 144

Fair value gains (losses) on trading securities (18) — (22) —

Other income (loss) 5 5 5 4

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Segment expenses

Loss expense 60 30

Loss expense (benefit) (17) (12) 43 18

Interest expense — — 1 —

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or (ii) terminations of insured obligations either through negotiated agreements or the exercise of the Company’s contractual rights to make claim payments on an accelerated basis.

Refundings occur in the public finance market when municipalities and other public finance issuers can refinance their debt obligations at lower rates than they are currently paying.

Refundings occur in the public finance market when municipalities and other public finance issuers pay down insured obligations prior to their originally scheduled maturities.

Refundings tend to increase when issuers can refinance their debt obligations at lower rates than they are currently paying.

The premiums associated with the insured obligations of municipalities and other public finance issuers are generally received upfront when the obligations are issued and insured.

When such issuers pay down insured obligations prior to their originally scheduled maturities, the Company is no longer on risk for payment defaults, and therefore accelerates the recognition of the remaining nonrefundable deferred premium revenue.

The amortization of our outstanding book of business along with the previously high levels of refunding activity has led to a lower volume of refunding opportunities over the last several years, except for refundings of Puerto Rico polices under the March Puerto Rico Resolutions.

When issuers pay down insured obligations, the Company is no longer on risk for payment defaults, and therefore accelerates the recognition of the remaining nonrefundable deferred premium revenue.

The amortization of the Company’s outstanding book of business along with the previously high levels of refunding activity has led to a lower volume of refunding opportunities over the last several years, except for refundings of Puerto Rico polices under the March Puerto Rico Resolutions.

Terminations are generally negotiated agreements with beneficiaries resulting in the extinguishment of the Company’s insurance obligation.

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Net Earned Premiums and Credit Derivative Revenues

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

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Total public finance 68 86 267 174

Structured finance scheduled net earned premiums (1) 15 15

Structured finance

Scheduled net earned premiums (1) 14 15 29 30

Terminations — 1 — 1

Total structured finance 14 16 29 31

Specialty insurance and reinsurance 1 1 2 2

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(1) Includes accretion of discount.

Net earned premiums and credit derivative revenues in First Quarter 2022 increased compared with First Quarter 2021 primarily due to refundings of $104 million associated with the March Puerto Rico Resolutions as discussed in Item 1.

Net earned premiums and credit derivative revenues decreased in second quarter 2022 compared with second quarter 2021 primarily due to lower refundings and changes in debt service assumptions .

Net earned premiums and credit derivative revenues increased in six months 2022 compared with six months 2021 primarily due to refundings of $104 million associated with the March Puerto Rico Resolutions discussed in Item 1.

Financial Statements, Note 3, Outstanding Exposure.

As of March 31, 2022, $3.6 billion of net deferred premium revenue on financial guaranty insurance remained to be earned over the life of the insurance contracts.

As of June 30, 2022, $3.6 billion of net deferred premium revenue on financial guaranty insurance remained to be earned over the life of the insurance contracts.

New Business Production

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New Business Production

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

Public Finance—U.S.

$ 57 $ 29 $ 106 $ 108

Public Finance—non-U.S.

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Public Finance—U.S.

$ 57 $ 29 $ 106 $ 110

Public Finance—non-U.S.

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Public Finance—non-U.S.

207 961 430 961

Structured Finance—U.S.

16 460 76 505

Structured Finance—non-U.S.

(1) 43 — 300 —

Total gross par written $ 6,695 $ 6,137 $ 11,166 $ 11,609

Average rating on new business written A- A-

Average rating on new business written A A- A- A-

____________________

(1) First Quarter 2022 PVP and gross par written includes the present value of future premiums and exposure, respectively, associated with a financial guarantee written by the Company that, under GAAP, is accounted for under ASC 460, Guarantees .

(1) Six months 2022 PVP and gross par written includes the present value of future premiums and exposure, respectively, associated with a financial guarantee written by the Company that, under GAAP, is accounted for under ASC 460, Guarantees .

(2) PVP and Gross Par Written in the table above are based on “close date,” when the transaction settles.

See “– Non-GAAP Financial Measures – PVP or Present Value of New Business Production.”

public finance GWP and PVP in First Quarter 2022 was lower than the comparable GWP and PVP in First Quarter 2021, primarily due to a large transaction closed in First Quarter 2021 that did not recur.

Second Quarter 2022

public finance GWP and PVP in second quarter 2022 was higher than the comparable GWP and PVP in second quarter 2021, primarily due to an increase in secondary market transactions.

The average rating of U.S.

public finance par written was A- in First Quarter 2022, which is consistent with the average rating in First Quarter 2021.

public finance par written was A in both second quarter 2022 and second quarter 2021.

The Company's direct par written represented 54% of the total U.S.

municipal market insured issuance in First Quarter 2022, compared with 65% in First Quarter 2021, and the Company’s penetration of all municipal issuance was 4.9% in First Quarter 2022 compared with 5.3% in First Quarter 2021.

In First Quarter 2022, non-U.S.

public finance GWP and PVP were primarily attributable to a U.K.

water liquidity guarantee and a restructuring of an existing U.K.

water transaction.

In First Quarter 2022, structured finance GWP is primarily attributable to U.S.

structured finance PVP primarily includes guarantees of rental income cash flows, for which no GWP is reported under GAAP.

municipal market insured issuance in second quarter 2022, compared with 52% in second quarter 2021, and the Company’s penetration of all municipal issuance was 4.8% in second quarter 2022 compared with 4.5% in second quarter 2021.

In second quarter 2022, non-U.S.

public finance GWP and PVP were primarily attributable to a secondary market guarantee for an institutional investor.

Six Months 2022

Six months 2022 U.S.

public finance GWP and PVP were relatively consistent compared with six months 2021.

The Company's direct par written represented 56% of the total U.S.

municipal market insured issuance in six months 2022, compared with 58% in six months 2021, and the Company’s penetration of all municipal issuance was 4.9% in both six months 2022 and six months 2021.

In six months 2022, non-U.S.

public finance GWP and PVP were primarily attributable to a secondary market guarantee for an institutional investor and two U.K.

water transactions.

Income from Investment Portfolio

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The investment yield is a function of market interest rates at the time of investment as well as the type, credit quality and maturity of the securities in this portfolio.

CVIs issued by Puerto Rico and received as part of the March Puerto Rico Resolutions are classified as trading with changes in fair value reported in the consolidated statements on operations.

The fair value of such instruments as of June 30, 2022 was $87 million.

Equity method investments in the Insurance segment include investments that the U.S.

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The income (loss) on such investments is reported in “equity in earnings (losses) of investees” and typically represents the change in net asset value (NAV) of AssuredIM Funds and the Company’s share of earnings of its other equity method alternative investments.

Insurance Subsidiaries are authorized

to invest up to $750 million in AssuredIM Funds.

As of March 31, 2022, the U.S.

Insurance Subsidiaries are authorized to invest up to $750 million in AssuredIM Funds.

Adding inception-to-date distributed gains, the U.S.

Insurance Subsidiaries may invest a total of up to $810 million in AssuredIM Funds.

As of June 30, 2022, the U.S.

Insurance Subsidiaries had total commitments to AssuredIM Funds of $757 million, of which $516 million represented net invested capital and $241 million was undrawn.

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Income from Investment Portfolio

First Quarter

(in millions)

Second Quarter Six Months

2022 2021 2022 2021

Net investment income

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Net investment income $ 66 $ 71 $ 129 $ 144

Other income:

Unrealized gain (loss) on trading securities $ (4) $ —

Fair value gains (losses) on trading securities $ (18) $ — $ (22) $ —

Equity in earnings (losses) of investees

AssuredIM Funds $ (33) $ 37 $ (22) $ 47

Other (1) 11 (13) 20

Equity in earnings (losses) of investees $ (34) $ 48 $ (35) $ 67

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(1) Represents interest income on a portfolio of CLOs and municipal bonds managed by AssuredIM under an IMA.

Net investment income for First Quarter 2022 decreased compared to First Quarter 2021, primarily due to lower average balances in fixed-maturity securities as short term investments were accumulated to meet liquidity needs as a result of the consummation of the March Puerto Rico Resolutions on March 15, 2022.

The overall pre-tax book yield was 3.15% as of March 31, 2022 and 3.23% as of March 31, 2021.

Excluding the internally managed portfolio, pre-tax book yield was 2.93% as of March 31, 2022 and 2.94% as of March 31, 2021.

Equity in earnings of AssuredIM Funds in First Quarter 2022 was primarily attributable to higher valuations of assets held in CLO, healthcare and asset-based funds.

The fair value gains on investments in AssuredIM Funds in First Quarter 2021 was primarily attributable to changes in the NAV of CLO funds.

Equity in earnings of other investments decreased in First Quarter 2022 compared with First Quarter 2021 primarily due to a stock price decline on a specific investment in a private equity fund.

CVIs issued by Puerto Rico and received as part of the March Puerto Rico Resolutions are classified as trading with changes in fair value reported in other income.

The fair value of such instruments as of March 31, 2022 was $174 million.

Other Income (Loss)

Other income (loss) consists of recurring items such as ancillary fees on financial guaranty policies for commitments and consents, foreign exchange gain (loss) on remeasurement, and if applicable, other revenue items on financial guaranty insurance and reinsurance contracts such as loss mitigation recoveries.

Beginning in First Quarter 2022, other income (loss) also included unrealized gain (loss) on the portfolio of trading securities.

Net investment income for second quarter 2022 and six months 2022 decreased compared to second quarter 2021 and six months 2021, primarily due to lower average balances in fixed-maturity securities as short term investments were accumulated to meet liquidity needs.

The overall pre-tax book yield was 2.95% as of June 30, 2022 and 3.15% as of June 30, 2021.

Excluding the internally managed portfolio, pre-tax book yield was 2.95% as of June 30, 2022 and 2.92% as of June 30, 2021.

Equity in earnings of AssuredIM Funds in second quarter 2022 and six months 2022 were losses and were primarily attributable to lower valuations of assets held in CLO funds and the dilutive impact of a subsequent close of a healthcare fund.

The fair value gains on investments in AssuredIM Funds in second quarter 2021 and six months 2021 was primarily attributable to changes in the NAV of CLO and healthcare funds.

Equity in earnings of other alternative investments decreased in second quarter 2022 and six months 2022 compared with second quarter 2021 and six months 2021 primarily due to mark to market losses on a specific investment in a private equity fund.

Economic Loss Development

The insured portfolio includes policies accounted for under three separate accounting models depending on the characteristics of the contract and the Company’s control rights.

For a discussion of methodologies used in estimating the expected loss to be paid (recovered) for all contracts and the accounting policies for measurement and recognition under GAAP

for each type of contract, see the notes listed below in Part II.

The insured portfolio includes policies accounted for under several different accounting models depending on the characteristics of the contract and the Company’s control rights.

For a discussion of methodologies used in estimating the expected loss to be paid (recovered) for all contracts and the accounting policies for measurement and recognition under GAAP for each type of contract, see the notes listed below in Part II.

Item 8, Financial Statements and Supplementary Data, of the Company’s 2021 Annual Report on Form 10-K:

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Dollar Denominated Obligations

As of March 31, 2022 As of December 31, 2021 As of March 31, 2021 As of December 31, 2020

As of June 30, 2022 As of March 31, 2022 As of December 31, 2021 As of June 30, 2021 As of March 31, 2021 As of December 31, 2020

Range 1.67% – 3.41% 0.00% – 2.61% 0.00% – 1.98% 0.00% – 2.14% 0.00% – 2.49% 0.00% – 1.72%

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Net Expected Loss to be Paid (Recovered) Net Economic Loss Development (Benefit)

As of First Quarter

Accounting Model March 31, 2022 December 31, 2021 2022 2021

As of Second Quarter Six Months

Accounting Model June 30, 2022 December 31, 2021 2022 2021 2022 2021

(in millions)

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Total $ 442 $ 411 $ (32) $ (20) $ (76) $ (7)

Net exposure rated below-investment-grade (BIG) $ 5,783 $ 7,440

Net exposure rated BIG $ 5,470 $ 7,440

Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit)

Net Expected Loss to be Paid (Recovered) Net Economic Loss Development (Benefit)

As of First Quarter

Sector March 31, 2022 December 31, 2021 2022 2021

As of Second Quarter Six Months

Sector June 30, 2022 December 31, 2021 2022 2021 2022 2021

(in millions)

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Effect of changes in the risk-free rates included in economic loss development (benefit) (42) 15 $ (89) $ (33)

First Quarter 2022 Net Economic Loss Development

Second Quarter 2022 Net Economic Loss Development

Public Finance:

The economic benefit on U.S.

exposures in First Quarter 2022 was $48 million, and was primarily attributable to Puerto Rico exposures and changes in discount rates.

The economic loss development on U.S.

exposures in second quarter 2022 was $8 million, and was primarily attributable to Puerto Rico exposures, partially offset by the effect of changes in discount rate.

Public finance expected loss to be paid primarily related to U.S.

exposures, which had BIG net par outstanding of $3.7 billion as of March 31, 2022 compared with $5.4 billion as of December 31, 2021.

exposures, which had BIG net par outstanding of $3.6 billion as of June 30, 2022 compared with $5.4 billion as of December 31, 2021.

The reduction in net par was primarily due to the March Puerto Rico Resolutions discussed in Item 1.

Financial Statements, Note 3, Outstanding Exposure.

The Company projected that its total net expected loss to be paid across its troubled U.S.

public finance exposures as of March 31, 2022 is $181 million, compared with $197 million as of December 31, 2021.

The economic loss development attributable to U.S.

RMBS was $7 million and was mainly attributable to a $43 million loss related to lower excess spread, partially offset by a $22 million benefit related to changes in discount rates and an $11 million benefit related to improved performance in certain transactions.

The economic benefit attributable to U.S.

RMBS was $39 million and was primarily attributable to a $23 million benefit related to changes in discount rates, a $17 million benefit related to improved performance in certain transactions, a $14 million benefit related to higher recoveries for secured second lien charged-off loans, and a $11 million benefit related to lower initial severity assumptions for first lien U.S.

RMBS transactions, partially offset by losses of $26 million related to lower excess spread.

See Item 1, Financial Statements, Note 4, Expected Loss to be Paid (Recovered) for additional information.

First Quarter 2021 Net Economic Loss Development

Second Quarter 2021 Net Economic Loss Development

Public Finance:

Public finance expected loss to be paid primarily related to U.S.

exposures, which had BIG net par outstanding of $5.4 billion as of March 31, 2021 compared with $5.4 billion as of December 31, 2020.

The Company projected that its total net expected loss across its troubled U.S.

public finance exposures as of March 31, 2021 was $228 million compared with $305 million as of December 31, 2020.

Expected loss to be paid primarily related to U.S.

exposures, which had BIG net par

outstanding of $5.6 billion as of June 30, 2021 compared with $5.4 billion as of December 31, 2020.

The Company projected

that its total net expected loss across its troubled U.S.

public finance exposures as of June 30, 2021 would be $221 million,

compared with $305 million as of December 31, 2020.

Economic loss development on U.S.

public finance exposures in First Quarter 2021 was $15 million, which was primarily attributable to Puerto Rico exposures.

The economic benefit was approximately $12 million for non-U.S.

public finance exposures during First Quarter 2021 mainly due to the restructuring of certain exposures and the impact of higher Euro Interbank Offered Rate (Euribor).

The economic loss development attributable to U.S.

RMBS was $11 million and was mainly related to a reduction of excess spread of $58 million, partially offset by changes in discount rates, which was a gain of $33 million, and improved performance in certain transactions and higher recoveries for secured charged-off loans.

exposures in second quarter 2021

was $1 million, which was primarily attributable to deterioration in a student housing transaction and changes in discount rates,

which were partially offset by improvement in certain Puerto Rico exposures.

The economic benefit attributable to U.S.

RMBS was $28 million and was mainly attributable to a $25 million benefit for higher excess spread, a $7 million benefit for higher recoveries received for charged-off loans, and a $7 million benefit for improved performance in certain transactions, partially offset by an $11 million loss for changes in discount rates.

Certain transactions benefit from excess spread when they are supported by large portions of fixed rate assets (either originally fixed or modified to be fixed) but have insured floating rate debt linked to LIBOR.

Lower LIBOR results in higher excess spread.

Other Structured Finance :

The economic loss development attributable to structured finance, excluding U.S.

was $8 million, which was primarily attributable to LAE for certain transactions.

Six Months 2022 Net Economic Loss Development

The economic benefit on U.S.

public finance exposures in six months 2022 was $40 million, which was primarily attributable to changes in discount rates.

The net benefit attributable to U.S.

RMBS was $32 million and was mainly related to a $45 million benefit related to changes in discount rates, a $27 million benefit related to improved performance in certain transactions, an $18 million benefit related to higher recoveries for secured second lien charged-off loans, and a $11 million benefit related to lower initial severity assumptions for first lien U.S.

RMBS transactions, partially offset by losses of $69 million related to lower excess spread.

Six Months 2021 Net Economic Loss Development

Economic loss development on U.S.

public finance exposures in six months 2021 was $16 million, which was

primarily attributable to Puerto Rico exposures and deterioration in a student housing transaction, which were partially offset by

changes in discount rates and improved cash flows for a certain transaction.

The economic benefit was approximately $13

million for non-U.S.

public finance exposures due mainly due to the restructuring of certain exposures and the impact of higher

The net benefit attributable to U.S.

RMBS was $17 million and was mainly related to a $22 million benefit for changes

in discount rates, a $17 million benefit for improvement in certain transactions and an $11 million benefit for higher recoveries

received for charged-off loans, partially offset by a $33 million loss for lower excess spread.

The economic loss development

attributable to structured finance, excluding U.S.

RMBS, was $7 million, which was primarily attributable to LAE for certain

transactions.

Insurance Segment Loss Expense

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and (3) does not include estimated losses on credit derivatives.

Insurance segment loss expense includes loss and LAE on financial guaranty insurance contracts and losses on credit derivatives, without giving effect to eliminations related to consolidation of FG VIEs.

For financial guaranty insurance contracts, each transaction’s expected loss to be expensed is compared with the deferred premium revenue of that transaction.

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The amount of Insurance segment loss expense, which includes all policies regardless of form, is a function of the amount of economic loss development discussed above and the deferred premium revenue amortization in a given period, on a contract-by-contract basis.

While expected loss to be paid (recovered) is an important liquidity measure that provides the present value of amounts that the Company expects to pay or recover in future periods on all contracts, expected loss to be expensed is important because it presents the Company’s projection of net expected losses that will be recognized in the consolidated statement of operations in future periods as deferred premium revenue amortizes into income for financial guaranty insurance policies.

While expected loss to be paid (recovered) is an important measure that provides the present value of amounts that the Company expects to pay or recover in future periods on all contracts, expected loss to be expensed is important because it presents the Company’s projection of net expected losses that will be recognized in the consolidated statement of operations in future periods as deferred premium revenue amortizes into income for financial guaranty insurance policies.

Loss expense (benefit) is a function of economic loss development (benefit), as well as the amortization of unearned premium reserve.

The following table presents the Insurance segment loss expense.

Insurance Segment

First Quarter

Loss Expense (Benefit)

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

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Structured finance

RMBS (28) (22) (22) (10)

Other structured finance — 7 (1) 7

Structured finance (28) (15) (23) (3)

Total Insurance segment loss expense $ 60 $ 30

Loss expense is a function of economic loss development, as well as the amortization of unearned premium reserve.

In First Quarter 2022, the largest component of loss expense was from the public finance sector, which had loss expense of $55 million primarily attributable to Puerto Rico exposures.

The public finance sector also had an economic benefit of $50 million, which was also primarily attributable to Puerto Rico exposures.

The difference between public finance loss expense and economic benefit was primarily attributable to the release of unearned premium reserve associated with extinguished Puerto Rico policies that previously had expected losses.

Loss expense in First Quarter 2021 was mainly driven by certain Puerto Rico transactions and U.S.

RMBS exposures.

For First Quarter 2021, these losses were partially offset by a benefit in certain European exposures.

For additional information on the expected timing of net expected losses to be expensed see Item 1, Financial Statements, Note 5, Contracts Accounted for as Insurance, Losses.

Total Insurance segment loss expense (benefit) $ (17) $ (12) $ 43 $ 18

The largest component of the U.S.

public finance loss expense was Puerto Rico exposures for all periods presented.

The difference between public finance loss expense and economic benefit in six months 2022 was primarily attributable to the release of unearned premium reserve associated with extinguished Puerto Rico policies that previously had expected losses.

The benefit in U.S.

RMBS in all periods presented is primarily related to second lien transactions.

For additional information on the expected timing of net expected losses to be expensed see Item 1, Financial Statements, Note 4, Expected Loss to be Paid (Recovered).

Other Operating Expenses

The decrease in other operating expenses in First Quarter 2022 compared with First Quarter 2021 was primarily attributable to the write-off of a $16 million intangible asset attributable to MAC insurance licenses in First Quarter 2021.

The decrease in other operating expenses in six months 2022 compared with six months 2021 was primarily attributable to the write-off of a $16 million intangible asset attributable to MAC insurance licenses in the first quarter of 2021.

MAC was merged with and into AGM on April 1, 2021.

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Financial Strength Ratings

On March 18, 2022, Moody’s Investors Service, Inc.

(Moody’s) upgraded the financial strength rating of AGM and AGUK to A1 (stable) from A2 (stable).

Demand for the financial guaranties issued by the Company’s insurance subsidiaries may be impacted by changes in the credit ratings assigned to them by the rating agencies.

The financial strength ratings (or similar ratings) assigned to AGL’s insurance subsidiaries, along with the date of the most recent rating action (or confirmation) by the rating agency assigning the rating, are shown in the table below.

S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC Kroll Bond Rating

S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC (S&P) Kroll Bond Rating

Agency Moody’s Investors Service, Inc.

(Moody’s) A.M.

Best Company,

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In addition, the Company periodically assesses the value of each rating assigned to each of its companies, and as a result of such assessment may request that a rating agency add or drop a rating from certain of its companies.

There can be no assurance that any of the rating agencies will not take negative action on the financial strength ratings (or similar ratings) of AGL’s insurance subsidiaries in the future or cease to rate one or more of AGL’s insurance subsidiaries, either voluntarily or at the request of that subsidiary.

There can be no assurance that any of the rating agencies will not take negative action on the financial strength ratings (or similar ratings) of AGL’s insurance

subsidiaries in the future or cease to rate one or more of AGL’s insurance subsidiaries, either voluntarily or at the request of that subsidiary.

For a discussion of the effects of rating actions on the Company beyond potential effects on the demand for its insurance products, see “— Liquidity and Capital Resources —” section below.

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Asset Management Segment Results

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

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(1) The Asset Management segment presents reimbursable fund expenses netted in other operating expenses, whereas on the condensed consolidated statement of operations such reimbursable expenses are shown gross as revenues.

(2) Includes amortization of intangible assets of $3 million in both First Quarter 2022 and First Quarter 2021.

(2) Includes amortization of intangible assets of $3 million in both second quarter 2022 and second quarter 2021 and $6 million in both six months 2022 and six months 2021.

Management and Performance Fees

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Insurance Subsidiaries invest along with two previously established opportunity funds in their harvest periods.

The Company also generates fees from legacy hedge and opportunity funds now subject to an orderly wind-down.

Management Fees

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

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Total management fees $ 27 $ 19 $ 48 $ 38

Fees from opportunity funds increased primarily due to higher AUM of $1.9 billion March 31, 2022 compared with $1.5 billion as of March 31, 2021.

Fees from opportunity funds increased primarily due to higher third party AUM in healthcare funds.

Fees from the wind-down funds decreased as distributions to investors continued.

As of March 31, 2022, AUM of the wind-down funds was $0.5 billion compared with $1.3 billion as of March 31, 2021 and $0.6 billion as of December 31, 2021.

CLO fee-earning AUM was $13.9 billion, or 97%, of total CLO AUM as of March 31, 2022, compared with $12.0 billion, or 83%, of total CLO AUM as of March 31, 2021.

Performance fees and increased compensation expenses in First Quarter 2022 were attributable to the performance of the healthcare and asset-based funds.

As of June 30, 2022, AUM of the wind-down funds was $0.3 billion compared with $1.2 billion as of June 30, 2021 and $0.6 billion as of December 31, 2021.

Performance fees and increased compensation expenses in six months 2022 were attributable to the healthcare and asset-based funds.

Assets Under Management

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Management fee revenue is based on a variety of factors and is not perfectly correlated with AUM.

However, the Company believes that AUM is a useful

metric for assessing the relative size and scope of our asset management business.

However, the Company believes that AUM is a useful metric for assessing the relative size and scope of the Company’s asset management business.

The Company uses measures of its AUM in its decision-making process and uses a measure of change in AUM in its calculation of certain components of management compensation.

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• the amount of aggregate collateral balance and principal cash of AssuredIM’s CLOs, including CLO Equity that may be held by AssuredIM Funds.

This also includes CLO assets managed by BlueMountain Fuji Management, LLC (BM Fuji), which was sold to a third party in the second quarter of 2021.

This also includes CLO assets managed by BlueMountain Fuji Management, LLC (BM Fuji), which was sold to a third party in second quarter 2021.

AssuredIM is not the investment manager of BM Fuji-advised CLOs, but following the sale, AssuredIM sub-advises and continues to provide personnel and other services to BM Fuji associated with the management of BM Fuji-advised CLOs pursuant to a sub-advisory agreement and a personnel and services agreement, consistent with past practices;

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Roll Forward of Assets Under Management

First Quarter 2022

Second Quarter 2022

CLOs Opportunity Funds (1) Liquid Strategies (2) Wind-Down Funds Total

(in millions)

AUM, March 31, 2022 $ 14,282 $ 1,874 $ 375 $ 459 $ 16,990

Inflows - third party 1,049 200 21 — 1,270

Inflows - intercompany 50 — 104 — 154

Redemptions — — — — —

Distributions (22) (39) (125) (140) (326)

Total outflows (22) (39) (125) (140) (326)

Net flows 1,077 161 — (140) 1,098

Change in value (183) 15 (3) 20 (151)

AUM, June 30, 2022

$ 15,176 $ 2,050 $ 372 $ 339 $ 17,937

Roll Forward of Assets Under Management

Six Months 2022

CLOs Opportunity Funds (1) Liquid Strategies (2) Wind-Down Funds Total

(in millions)

AUM, December 31, 2021 $ 14,699 $ 1,824 $ 389 $ 582 $ 17,494

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Change in value (265) 78 (17) 32 (172)

AUM, March 31, 2022

AUM, June 30, 2022

$ 15,176 $ 2,050 $ 372 $ 339 $ 17,937

_____________________

(1) Opportunity funds inflows in First Quarter 2022 is primarily related to the healthcare strategy fund.

(2) Distributions from opportunity funds include $48 million related to the AssuredIM Funds created prior to BlueMountain Acquisition.

As of March 31, 2022, AUM related to these funds was $128 million.

(1) Opportunity funds inflows in second quarter 2022 and six months 2022 are primarily related to the healthcare strategy fund.

Distributions from opportunity funds include $26 million and $74 million in second quarter 2022 and six months 2022, respectively, related to the AssuredIM Funds created prior to BlueMountain Acquisition.

As of June 30, 2022, AUM related to these funds was $114 million.

(2) Liquid strategies inflows and outflows in second quarter 2022 and six months 2022 relate to the transfer of assets from an existing municipal bond fund to a new municipal relative value fund.

Components of Assets Under Management

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(in millions)

As of March 31, 2022:

As of June 30, 2022:

Funded AUM $ 15,069 $ 1,288 $ 372 $ 317 $ 17,046

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Corporate Division Results

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

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Corporate division interest expense primarily relates to debt issued by the U.S.

Holding Companies, and also includes intersegment interest expense of $2 million in both First Quarter 2022 and First Quarter 2021 related primarily to the $250 million AGUS debt to the U.S.

Holding Companies, and also includes intersegment interest expense of $3 million in both second quarter 2022 and second quarter 2021 and $5 million in both six months 2022 and six months 2021, respectively.

Intersegment interest expense relates primarily to the $250 million AGUS

debt to the U.S.

Insurance Subsidiaries, which was borrowed in October 2019 in connection with the BlueMountain Acquisition.

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(2) eliminating the premiums and losses associated with the financial guaranty insurance contracts between the insurance subsidiaries and the FG VIEs;

(3) eliminating the investment balances associated with the insurance subsidiaries’ purchases of the debt obligations of the FG VIEs, and establishing the noncontrolling interests.

The effect of consolidating CIVs (as opposed to accounting for them as equity method investments in the Insurance segment) has a significant effect on assets, liabilities and cash flows, and includes:

and (3) eliminating the investment balances associated with the insurance subsidiaries’ purchases of the debt obligations of the FG VIEs.

The effect of consolidating CIVs (as opposed to accounting for them as equity method investments) has a significant effect on assets, liabilities and cash flows, and includes:

(1) the establishment of the assets and liabilities of the CIVs, and related changes in fair value;

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(3) eliminating the equity method investments of the insurance subsidiaries and related equity in earnings (losses) of investees and (4) establishing non-controlling interest for amounts not owned by the Company.

The economic effect of the Company’s ownership interest in CIVs is presented in the Insurance segment as equity in earnings (losses) of investees, and as separate line items (“assets of CIVs,” “liabilities of CIVs,” and redeemable and non-redeemable non-controlling interest) on a consolidated basis.

The economic effect of the U.S Insurance Subsidiaries’ ownership interests in CIVs is presented in the Insurance segment as equity in earnings (losses) of investees, while the effect of CIVs is presented as separate line items (“assets of CIVs,” “liabilities of CIVs,” and redeemable and non-redeemable non-controlling interest) on a consolidated basis.

The table below reflects the effect of consolidating FG VIEs and CIVs on the condensed consolidated statements of operations.

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(1) the revenues and expenses of the FG VIEs and the CIVs;

and (2) the amounts eliminated between consolidated FG VIEs or CIVs and the operating and investment subsidiaries.

and (2) the consolidation adjustments and eliminations between consolidated FG VIEs or CIVs and the operating and investment subsidiaries.

Effect of Consolidating FG VIEs and CIVs on the Condensed Consolidated Statements of Operations

Increase (Decrease)

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

Effect on Financial Statement Line Item (in millions)

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FG VIEs $ 1 $ 3 $ 3 $ 3

CIVs 9 1 (3) 1

Effect on net income (loss) attributable to AGL $ 10 $ 4 $ — $ 4

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(2) Represents the elimination of the equity in earnings (losses) of investees of AGAS and the other subsidiaries’ investments in the consolidated AssuredIM Funds.

(3) Includes net earned premiums, net investment income, asset management fees, other income (loss), loss and LAE and other operating expenses.

(3) Includes net earned premiums, net investment income, asset management fees, foreign exchange gains (losses) on remeasurement, other income (loss), loss and LAE and other operating expenses.

(4) Represents the proportion of consolidated AssuredIM Funds’ income that is not attributable to AGAS’ or any other subsidiaries’ ownership interest.

Fair value gains on CIVs in First Quarter 2022 and First Quarter 2021 were attributable to realized gains or losses, changes in underlying investment prices and investment interest, net of fees and expenses.

Fair value gains on FG VIEs for First Quarter 2022 were attributable to price depreciation on insured fixed rate debt that were negatively impacted due to the increase in interest rates.

Fair value gains on FG VIEs for First Quarter 2021 were attributable to price depreciation on insured fixed rate debt that were negatively impacted due to the assumptions in forward interest rates.

The impact of consolidating FG VIEs and CIVs was $10 million in second quarter 2022, compared with $4 million in second quarter 2021 due mainly to the out-of-period adjustments of $9 million (see Item 1, Financial Statements, Note 1, Business and Basis of Presentation), and fair value gains associated with consolidated AssuredIM Funds, mainly the healthcare fund.

Reconciliation to GAAP

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to Adjusted Operating Income (Loss)

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

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Net Realized Investment Gains (Losses)

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

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Net realized investment gains (losses) $ (28) $ 4 $ (25) $ 1

O ther net realized gains in First Quarter 2022 related primarily to the sale of one of the Company’s alternative investments.

Gross realized losses on sales of available-for-sale securities in second quarter 2022 and six months 2022 were primarily attributable to Puerto Rico recovery bonds.

Other net realized gains in six months 2022 relate primarily to the sale of one of the Company’s alternative investments.

Non-Credit Impairment-Related Unrealized Fair Value Gains (Losses) on Credit Derivatives

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The fair value of credit derivative contracts also reflects the change in the Company’s own credit cost based on the price to purchase credit protection on AGC.

relatively low volume and characteristics of CDS contracts remaining in AGM’s portfolio, changes in AGM’s credit spreads do not significantly affect the fair value of these CDS contracts.

Due to the relatively low volume and characteristics of CDS contracts remaining in AGM’s portfolio, changes in AGM’s credit spreads do not significantly affect the fair value of these CDS contracts.

The Company determines its own credit risk based on quoted CDS prices traded on AGC at each balance sheet date.

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The models used to determine fair value are primarily developed internally based on market conventions for similar transactions that the Company observed in the past.

There has been very limited new issuance activity in this market since 2009 and, as of March 31, 2022, market prices for the Company’s credit derivative contracts were generally not available.

There has been very limited new issuance activity in this market since 2009 and, as of June 30, 2022, market prices for the Company’s credit derivative contracts were generally not available.

Inputs to the estimate of fair value include various market indices, credit spreads, the Company’s own credit spread, and estimated contractual payments.

See Item 1, Financial Statements, Note 9, Fair Value Measurement, for additional information.

First Quarter 2022 non-credit impairment-related unrealized fair value losses were generated primarily as a result of increases in the credit spread of underlying reference obligations, offset in part by the increased cost to buy protection on AGC, as the market cost of AGC’s protection increased during the period.

First Quarter 2021 non-credit impairment-related unrealized fair value losses were generated primarily as a result of the decreased cost to buy protection on AGC, as the market cost of AGC's credit protection decreased during the period.

These losses were partially offset by the higher discount rates.

Second quarter 2022 and six months 2022 non-credit impairment-related unrealized fair value gains were generated primarily as a result of the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection increased during the period, and changes in discount rates.

These gains were partially offset by an increase in the credit spread of certain underlying reference obligations.

Except for underlying credit impairment, which is recognized as loss expense in the Insurance segment, the fair value adjustments on credit derivatives in the insured portfolio are non-economic adjustments that reverse to zero over the remaining term of that portfolio.

Second quarter 2021 and six months 2021 non-credit impairment fair value losses on credit derivatives were generated primarily as a result of the tightening of AGC spreads, partially offset by general price improvements of the underlying collateral.

Sensitivity to Changes in Credit Spread

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Effect of Changes in Credit Spread

As of March 31, 2022 As of December 31, 2021

As of June 30, 2022 As of December 31, 2021

Credit Spreads (1) Estimated Net

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Fair Value Gains (Losses) on CCS

Fair value gains on CCS in First Quarter 2022 were primarily due to a significant increase in LIBOR.

Fair value losses on CCS in First Quarter 2021 were primarily due to a tightening in market spreads.

Fair value gains on CCS in second quarter 2022 and six months 2022 were primarily due to a significant increase in LIBOR.

Fair value losses on CCS in second quarter 2021 and six months 2021 were primarily due to a tightening in market spreads during the periods.

Fair value of CCS is heavily affected by, and in part fluctuates with, changes in market spreads and interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.

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(3) adjusted book value per share, further adjusted to remove the effect of FG VIE and CIV consolidation;

(4) PVP, and (5) gross third-party assets raised.

and (5) gross third-party assets raised.

Management believes that many investors, analysts and financial news reporters use adjusted operating shareholders’ equity and/or adjusted book value, each further adjusted to remove the effect of FG VIE and CIV consolidation, as the principal financial measures for valuing AGL’s current share price or projected share price and also as the basis of their decision to recommend, buy or sell AGL’s common shares.

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Adjusted book value per share, further adjusted for FG VIE and CIV consolidation (core adjusted book value), is one of the key financial measures used in determining the amount of certain long-term compensation elements to management and employees and used by rating agencies and investors.

Management believes that adjusted book value is a useful measure because it enables an evaluation of the Company’s in-force premiums and revenues net of expected losses.

Management believes that adjusted book value is a useful measure because it enables an evaluation of the Company’s in-force premiums and revenues

net of expected losses.

Adjusted book value is adjusted operating shareholders’ equity, as defined above, further adjusted for the following:

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to Adjusted Operating Shareholders’ Equity and Adjusted Book Value

As of March 31, 2022 As of December 31, 2021

As of June 30, 2022 As of December 31, 2021

After-Tax Per Share After-Tax Per Share

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Gain (loss) related to FG VIE and CIV consolidation included in:

Adjusted operating shareholders’ equity (net of tax provision (benefit) of $5 and $5) $ 22 $ 0.34 $ 32 $ 0.47

Adjusted book value (net of tax provision (benefit) of $3 and $3) 13 0.19 23 0.34

Adjusted operating shareholders’ equity (net of tax provision of $6 and $5) $ 26 $ 0.42 $ 32 $ 0.47

Adjusted book value (net of tax provision of $3 and $3) 18 0.29 23 0.34

Net Present Value of Estimated Net Future Revenue

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The discount rate is recalculated annually and updated as necessary.

changes in foreign exchange rates, prepayment speeds, terminations, credit defaults or other factors that affect par outstanding or the ultimate maturity of an obligation.

Net present value of estimated future revenue for an obligation may change from period to period due to a change in the discount rate or due to a change in estimated net future revenue for the obligation, which may change due to changes in foreign exchange rates, prepayment speeds, terminations, credit defaults or other factors that affect par outstanding or the ultimate maturity of an obligation.

There is no corresponding GAAP financial measure.

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Reconciliation of GWP to PVP

First Quarter 2022 First Quarter 2021

Second Quarter 2022 Second Quarter 2021

Public Finance Structured Finance Public Finance Structured Finance

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PVP $ 57 $ 18 $ — $ 1 $ 76 $ 29 $ 43 $ 9 $ — $ 81

Six Months 2022 Six Months 2021

Public Finance Structured Finance Public Finance Structured Finance

(in millions)

GWP $ 106 $ 22 $ 6 $ 1 $ 135 $ 108 $ 49 $ 14 $ — $ 171

Installment GWP and other GAAP adjustments (1) — 22 4 1 27 34 27 12 — 73

Upfront GWP 106 — 2 — 108 74 22 2 — 98

Installment premiums and other (2) — 30 — 7 37 36 24 9 — 69

PVP $ 106 $ 30 $ 2 $ 7 $ 145 $ 110 $ 46 $ 11 $ — $ 167

___________________

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Net Par Outstanding and Average Internal Rating by Sector

As of March 31, 2022 As of December 31, 2021

As of June 30, 2022 As of December 31, 2021

Sector Net Par

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Financial products 520 AA- 770 AA-

Consumer receivables 545 A+ 583 A+

Pooled corporate obligations 510 AA+ 534 AA+

Consumer receivables 505 A+ 583 A+

Other structured finance 711 BBB+ 665 BBB+

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Second-to-pay insured par outstanding represents transactions the Company has insured that are already insured by another financial guaranty insurer and where the Company’s obligation to pay under its insurance of such transactions arises only if both the obligor on the underlying insured obligation and the primary financial guaranty insurer default.

underwrites such transactions based on the underlying insured obligation without regard to the primary financial guaranty insurer and internally rates the transaction the higher of the rating of the underlying obligation and the rating of the primary financial guarantor.

The second-to-pay insured par outstanding as of March 31, 2022 and December 31, 2021 was $4.7 billion and $4.9 billion, respectively.

The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction were BIG was $39 million and $43 million as of March 31, 2022 and December 31, 2021, respectively.

The Company underwrites such transactions based on the underlying insured obligation without regard to the primary financial guaranty insurer and internally rates the transaction the higher of the rating of the underlying obligation and the rating of the primary

financial guarantor.

The second-to-pay insured par outstanding as of June 30, 2022 and December 31, 2021 was $4.6 billion and $4.9 billion, respectively.

The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction were BIG was $27 million and $43 million as of June 30, 2022 and December 31, 2021, respectively.

Exposure to Puerto Rico

The Company had insured exposure to general obligation bonds of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) and various obligations of its related authorities and public corporations aggregating $2.2 billion net par outstanding as of March 31, 2022, all of which was rated BIG.

Beginning on January 1, 2016, a number of Puerto Rico exposures have defaulted on bond payments, and the Company has now paid claims on all of its Puerto Rico exposures except the Municipal Finance Agency (MFA), the Puerto Rico Aqueduct and Sewer Authority (PRASA), and the University of Puerto Rico (U of PR).

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Exposure to Puerto Rico By Company

As of March 31, 2022

As of June 30, 2022

Net Par Outstanding

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Total GO/PBA Plan 7 25 11 (1) 42 42

Puerto Rico Highways and Transportation Authority (PRHTA) (Transportation revenue) 233 467 178 (79) 799 799

PRHTA (Transportation revenue) 233 467 178 (79) 799 799

PRHTA (Highway revenue) 381 51 25 — 457 457

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The Company guarantees payments of debt service when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis.

that obligors default on their obligations, the Company would only pay the shortfall between the debt service due in any given period and the amount paid by the obligors.

In the event that obligors default on their obligations, the Company would only pay the shortfall between the debt service due in any given period and the amount paid by the obligors.

Amortization Schedule of Net Par of Puerto Rico

As of March 31, 2022

As of June 30, 2022

Scheduled Net Par Amortization

2022 (2Q) 2022 (3Q) 2022 (4Q) 2023 2024 2025 2026 2027 - 2031 2032 - 2036 2037 - 2041 2042 Total

2022 (3Q) 2022 (4Q) 2023 2024 2025 2026 2027 - 2031 2032 - 2036 2037 - 2041 2042 Total

(in millions)

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Amortization Schedule of Net Debt Service of Puerto Rico

As of March 31, 2022

As of June 30, 2022

Scheduled Net Debt Service Amortization

2022 (2Q) 2022 (3Q) 2022 (4Q) 2023 2024 2025 2026 2027 - 2031 2032 - 2036 2037 - 2041 2042 Total

2022 (3Q) 2022 (4Q) 2023 2024 2025 2026 2027 - 2031 2032 - 2036 2037 - 2041 2042 Total

(in millions)

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The following table presents information in respect of the U.S.

RMBS exposures to supplement the disclosures and discussion provided in Item 1, Financial Statements, Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid

RMBS exposures to supplement the disclosures and discussion provided in Item 1, Financial Statements, Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid (Recovered).

RMBS exposures represent 0.9% of the total net par outstanding, and BIG U.S.

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Distribution of U.S.

RMBS by Year Insured and Type of Exposure as of March 31, 2022

RMBS by Year Insured and Type of Exposure as of June 30, 2022

First Lien Alt-A

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Holding Companies

AGL directly owns (i) AG Re, an insurance company domiciled in Bermuda, and (ii) AGUS, a U.S.

AGL directly owns (i) AG Re, an insurance company domiciled in Bermuda;

and (ii) AGUS, a U.S.

holding company with public debt.

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Long-Term Debt and Intercompany Loans

As of March 31, 2022 As of December 31, 2021

As of June 30, 2022 As of December 31, 2021

(in millions)

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Holding Companies, excluding their investments in subsidiaries.

As of March 31, 2022

As of June 30, 2022

Holding Companies

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____________________

(1) As of March 31, 2022, weighted average durations of AGL’s and the U.S.

(1) As of June 30, 2022, weighted average durations of AGL’s and the U.S.

Holding Companies' fixed-maturity securities (excluding AGUS’ investment in AGMH’s debt) were 5.9 years and 5.0 years, respectively.

(2) Represents receivable and payables with non-guarantor subsidiaries.

First Quarter 2022

Six Months 2022

Holding Companies

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Significant Cash Flow Items

First Quarter 2022

Six Months 2022

Holding Companies

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Treasuries, agency RMBS and pre-refunded municipal bonds equal to 1.5 times its projected operating company cash flow needs over the next four quarters.

As of March 31, 2022, the Company intended to hold and had the ability to hold securities in an unrealized loss position until the date of anticipated recovery of amortized cost.

As of June 30, 2022, the Company intended to hold and had the ability to hold securities in an unrealized loss position until the date of anticipated recovery of amortized cost.

Beyond the next twelve months, the ability of the operating subsidiaries to declare and pay dividends may be influenced by a variety of factors, including market conditions, general economic conditions, and, in the case of the Company’s insurance subsidiaries, insurance regulations and rating agency capital requirements.

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Payments made in settlement of the Company’s obligations arising from its insured portfolio may, and often do, vary significantly from year to year, depending primarily on the frequency and severity of payment defaults and whether the Company chooses to accelerate its payment obligations in order to mitigate future losses.

While it appears to the Company that significant federal funding in 2021 may have mitigated the financial stress from direct and indirect consequences of COVID-19 for most obligors and assets underlying obligations guaranteed by the Company, the pandemic may still result in further

increases in claims and loss reserves.

While it appears to the Company that significant federal funding in 2021 may have mitigated the financial stress from direct and indirect consequences of COVID-19

for most obligors and assets underlying obligations guaranteed by the Company, the pandemic may still result in further increases in claims and loss reserves.

The Company believes that state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various intermittent closures and capacity and travel restrictions or an economic downturn, are most at risk for increased claims.

The size and depth of the COVID-19 pandemic, its course and duration and the direct and indirect consequences of governmental and private responses to it, and the effectiveness and acceptance of vaccines and therapeutics for it, remain unknown, so the Company cannot predict the ultimate size of any increases in claims that may result from the pandemic.

In addition, as of March 31, 2022, the Company has financial guaranty exposure to the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations aggregating $2.2 billion net par outstanding, all of which is rated BIG.

In addition, as of June 30, 2022, the Company has financial guaranty exposure to the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations aggregating $2.2 billion net par outstanding, all of which is rated BIG.

As set forth in Item 1, Financial Statements, Note 3, Outstanding Exposure, its $1.3 billion net outstanding par exposure to PRHTA is subject to a plan of adjustment filed by the FOMB with the Title III Court on May 2, 2022 (HTA Plan).

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While the Company has the capacity to generate sufficient liquidity internally to fund the full amount of the gross claim payments it would be required to pay under the HTA Plan, the Company may enter into a secured short-term loan facility to partially fund such gross claim payments until it sells the securities it expects to receive under the HTA Plan.

Financial Statements Note 11, Credit Facilities, for a description of the secured short-term facility it used to partially fund the claim payments it made in connection with the consummation of the March Puerto Rico Resolutions in March 2022.

Financial Statements Note 11, Long-Term Debt and Credit Facilities, for a description of the secured short-term facility it used to partially fund the claim payments it made in connection with the consummation of the March Puerto Rico Resolutions in March 2022.

In connection with the acquisition of AGMH, AGM agreed to retain the risks relating to the debt and strip policy portions of the leveraged lease business.

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However, early termination of a lease does not result in a draw on the AGM policy if the tax-exempt entity makes the required termination payment.

If all the leases were to terminate early and the tax-exempt entities did not make the required early termination payments, then AGM would be exposed to possible liquidity claims on gross exposure of approximately $446 million as of March 31, 2022.

To date, none of the leveraged lease transactions that involve AGM has experienced an early termination due to a lease default and a claim on the AGM policy.

As of March 31, 2022, approximately $1.9 billion of cumulative strip par exposure had been terminated since 2008 on a consensual basis.

As of June 30, 2022, approximately $1.9 billion of cumulative strip par exposure had been terminated since 2008 on a consensual basis.

The consensual terminations have resulted in no claims on AGM.

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The Company anticipates that, for the next twelve months, amounts paid by AGL’s direct and indirect insurance subsidiaries as dividends or other distributions will be a major source of the holding companies’ liquidity.

The insurance subsidiaries’ ability to pay dividends depends upon their financial condition, results of operations, cash requirements, other

potential uses for such funds, and compliance with rating agency requirements, and is also subject to restrictions contained in the insurance laws and related regulations of their states of domicile.

The insurance subsidiaries’ ability to pay dividends depends upon their financial condition, results of operations, cash requirements, other potential uses for such funds, and compliance with rating agency requirements, and is also subject to restrictions contained in the insurance laws and related regulations of their states of domicile.

For more information, see Part II, Item 8, Financial Statements and Supplementary Data, Note 16, Insurance Company Regulatory Requirements, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for a complete discussion of the Company’s dividend restrictions applicable to AGC, AGM, AG Re and AGRO.

Dividend restrictions by insurance subsidiary are as follows:

• The maximum amount available during 2022 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is estimated to be approximately $291 million, but none is available for distribution in the second quarter of 2022.

• The maximum amount available during 2022 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $207 million, of which approximately $25 million is available for distribution in the second quarter of 2022.

• Based on the applicable law and regulations, in 2022 AG Re (a subsidiary of AGL) has the capacity to (i) make capital distributions in an aggregate amount up to $129 million without the prior approval of the Bermuda Monetary Authority (the Authority) and (ii) declare and pay dividends in an aggregate amount up to approximately $236 million as of March 31, 2022.

Such dividend capacity is further limited by (i) the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $146 million as of March 31, 2022, and (ii) the amount of statutory surplus, which as of March 31, 2022 was $42 million.

• Based on the applicable law and regulations, in 2021 AGRO (an indirect subsidiary of AGRe) has the capacity to (i) make capital distributions in an aggregate amount up to $21 million without the prior approval of the Authority and (ii) declare and pay dividends in an aggregate amount up to approximately $106 million as of March 31, 2022.

Such dividend capacity is further limited by (i) the actual amount of AGRO’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $396 million as of March 31, 2022, and (ii) the amount of statutory surplus, which as of March 31, 2022 was $270 million.

• The maximum amount available during 2022 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is estimated to be approximately $278 million, of which approximately $77 million is available for distribution in the third quarter of 2022.

• The maximum amount available during 2022 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $207 million, of which approximately $16 million is available for distribution in the third quarter of 2022.

Such dividend capacity is further limited by (i) the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $199 million as of June 30, 2022, and (ii) the amount of statutory surplus, which as of June 30, 2022 was a deficit of $13 million.

• Based on the applicable law and regulations, in 2022 AGRO (an indirect subsidiary of AG Re) has the capacity to (i) make capital distributions in an aggregate amount up to $21 million without the prior approval of the Authority and (ii) declare and pay dividends in an aggregate amount up to approximately $106 million as of June 30, 2022.

Such dividend capacity is further limited by (i) the actual amount of AGRO’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $382 million as of June 30, 2022, and (ii) the amount of statutory surplus, which as of June 30, 2022 was $258 million.

Distributions From Insurance Company Subsidiaries

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

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or (c) upon certain changes of control of the Assuming Subsidiary.

Upon termination due to one of the above events, the Assuming Subsidiary typically would be required to return to the ceding company unearned premiums (net of ceding commissions) and loss reserves, calculated on a U.S.

Upon termination due to one of the above events, the Assuming

Subsidiary typically would be required to return to the ceding company unearned premiums (net of ceding commissions) and loss reserves, calculated on a U.S.

statutory basis, attributable to the assumed business (plus in certain cases, an additional required amount), after which the Assuming Subsidiary would be released from liability with respect to such business.

As of March 31, 2022, if each third-party company ceding business to an Assuming Subsidiary had a right to recapture such business, and chose to exercise such right, the aggregate amounts those subsidiaries could be required to pay to all such ceding companies would be approximately $268 million, including $237 million by AGC and $31 million by AG Re.

As of June 30, 2022, if each third-party company ceding business to an Assuming Subsidiary had a right to recapture such business, and chose to exercise such right, the aggregate amounts those subsidiaries could be required to pay to all such ceding companies would be approximately $267 million, including $233 million by AGC and $34 million by AG Re.

Committed Capital Securities

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Approximately 70% of the total investment portfolio is managed by external parties.

Each of the three external investment managers must maintain a minimum average rating of A+/A1/A+ by S&P Global Ratings, a division of Standard & Poor's Financial Services LLC (S&P), Moody’s and Fitch Ratings Inc., respectively.

Each of the three external investment managers must maintain a minimum average rating of A+/A1/A+ by S&P Global Ratings, a division of Standard & Poor's Financial Services LLC, Moody’s and Fitch Ratings Inc., respectively.

Changes in interest rates affect the value of the Company’s fixed-maturity securities.

5 unchanged sentences

Carrying Value

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(in millions)

Fixed-maturity securities, available-for-sale (1) $ 7,396 $ 8,202

Fixed-maturity securities - Puerto Rico, trading 174 —

Fixed-maturity securities, trading (2) 87 —

Short-term investments 863 1,225

2 unchanged sentences

____________________

(1) Include $514 million of new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

The Company’s available-for-sale fixed-maturity securities had a duration of 4.3 years and 4.7 years as of March 31, 2022 and December 31, 2021, respectively.

Generally, the Company’s fixed-maturity securities are designated as available-for-sale, except for CVIs received under the March Puerto Rico Resolutions, which are classified as trading.

(1) As of June 30, 2022, fixed maturity securities includes $241 million of new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

(2) Represents CVIs received under the March Puerto Rico Resolutions.

The Company’s available-for-sale fixed-maturity securities had a duration of 4.3 years and 4.7 years as of June 30, 2022 and December 31, 2021, respectively.

Available-for-Sale Fixed-Maturity Securities By Contractual Maturity

2 unchanged sentences

Distribution of Available-for-Sale Fixed-Maturity Securities by Contractual Maturity

As of March 31, 2022

As of June 30, 2022

Cost Estimated

8 unchanged sentences

Available-for-Sale Fixed-Maturity Securities By Rating

The following table summarizes the ratings distributions of the Company’s available-for-sale fixed-maturity securities as of March 31, 2022 and December 31, 2021.

The following table summarizes the ratings distributions of the Company’s available-for-sale fixed-maturity securities as of June 30, 2022 and December 31, 2021.

Ratings reflect the lower of Moody’s and S&P classifications, except for bonds purchased for loss mitigation and certain other securities, which use Assured Guaranty’s internal ratings classifications, or are not rated, such as the Puerto Rico securities received under the March Puerto Rico Resolutions.

Distribution of Available-for-Sale Fixed-Maturity Securities by Rating

Rating March 31, 2022 December 31, 2021

Rating June 30, 2022 December 31, 2021

AAA 14.6 % 14.6 %

5 unchanged sentences

(1) Includes primarily loss mitigation securities.

See Item I, Financial Statements, Note 7, Investments, for additional information.

(2) As of March 31, 2022, primarily represent new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

See Item 1, Financial Statements, Note 7, Investments, for additional information.

(2) As of June 30, 2022, primarily represent new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

Other Investments

1 unchanged sentence

The Insurance segment reports AGAS’s percentage ownership of AssuredIM Funds’ as equity method investments with changes in NAV included in the Insurance segment adjusted operating income.

As of March 31, 2022 and December 31, 2021, all of the funds in which AGAS invests are consolidated in the Company’s consolidated financial statements.

As of June 30, 2022 and December 31, 2021, all of the funds in which AGAS invests are consolidated in the Company’s consolidated financial statements.

The amounts in the table below represent the fair value of AGAS’s interests in the AssuredIM Funds.

1 unchanged sentence

Fair Value of AGAS’s Interest in AssuredIM Funds

Strategy March 31, 2022 December 31, 2021

Strategy June 30, 2022 December 31, 2021

(in millions)

5 unchanged sentences

Equity in Earnings (Losses) of Investees of AGAS’s Investment in AssuredIM Funds

First Quarter

Second Quarter Six Months

Strategy 2022 2021 2022 2021

(in millions)

CLOs $ (23) $ 11 $ (16) $ 18

Municipal bonds — 1 (4) 2

3 unchanged sentences

Restricted Assets

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $229 million and $243 million as of March 31, 2022 and December 31, 2021, respectively.

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $217 million and $243 million as of June 30, 2022 and December 31, 2021, respectively.

The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the

benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of $1,160 million and $1,231 million, based on fair value, as of March 31, 2022 and December 31, 2021, respectively.

The Company is authorized to invest up to $750 million in AssuredIM Funds.

As of March 31, 2022, the Insurance segment had total commitments to AssuredIM Funds of $702 million, of which $473 million represented net invested capital and $229 million was undrawn.

The Company had unfunded commitments of $96 million as of March 31, 2022 related to certain of the Company’s other alternative investments.

benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of $1,149 million and $1,231 million, based on fair value, as of June 30, 2022 and December 31, 2021, respectively.

Insurance Subsidiaries are authorized to invest up to $750 million in AssuredIM Funds.

Adding inception-to-date distributed gains, the U.S.

Insurance Subsidiaries may invest a total of up to $810 million in AssuredIM Funds.

As of June 30, 2022, the Insurance segment had total commitments to AssuredIM Funds of $757 million, of which $516 million represented net invested capital and $241 million was undrawn.

The Company had unfunded commitments of $96 million as of June 30, 2022 related to certain of the Company’s alternative investments other than AssuredIM Funds.

Sources and Uses of Funds

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(1) cash from operations, including management and performance fees (which are unpredictable as to amount and timing);

and (2) capital contributions from AGUS ($15 million and $15 million in First Quarter 2022 and First Quarter 2021, respectively, had been contributed to supplement cash from operations).

As of March 31, 2022, AssuredIM had $24 million in cash and short-term investments.

and (2) capital contributions from AGUS ($15 million and $15 million in six months 2022 and six months 2021, respectively, had been contributed to supplement cash from operations).

As of June 30, 2022, AssuredIM had $30 million in cash and short-term investments.

AssuredIM’s liquidity needs primarily include:

25 unchanged sentences

Collateral within each investment vehicle is also available only against borrowings by that investment vehicle and not against the borrowings of other investment vehicles or Assured Guaranty subsidiaries.

As of March 31, 2022, these credit facilities had varying maturities ranging from April 28, 2022 to September 15, 2023 with the aggregate principal amount not exceeding $1.0 billion.

As of June 30, 2022, these credit facilities had varying maturities ranging from September 15, 2023 to May 13, 2024 with the aggregate principal amount not exceeding $777 million.

The available commitment was based on the amount of equity contributed to the warehouse which was $228 million.

As of March 31, 2022, $310 million was drawn down under credit facilities with the interest rates ranging from 3-month Euribor plus 100 basis points (bps) to 3-month LIBOR plus 100 bps (with a floor on the Euribor/LIBOR rates of zero).

The CLO warehouses were in compliance with all financial covenants as of March 31, 2022.

As of March 31, 2022, a consolidated healthcare fund was a party to a credit facility (jointly with another healthcare fund that was not consolidated) with a maturity date of December 29, 2023 with the aggregate principal amount not to exceed $80 million jointly and $48 million individually for the consolidated healthcare fund.

As of June 30, 2022, $145 million was drawn down under credit facilities with the interest rates ranging from 3-month Euribor plus 100 basis points (bps) to 3-month SOFR plus 130 bps (with a floor on the Euribor rates of zero).

The CLO warehouses were in compliance with all financial covenants as of June 30, 2022.

As of June 30, 2022, a consolidated healthcare fund was a party to a credit facility (jointly with another healthcare fund that was not consolidated) with a maturity date of December 29, 2023 with the aggregate principal amount not to exceed $110 million jointly and $71 million individually for the consolidated healthcare fund.

The available commitment was based on the amount of equity contributed to the funds.

As of March 31, 2022, $15 million was drawn down by the consolidated fund under the credit facility with an interest rate of Prime (with a Prime Floor of 3%).

The fund was in compliance with all financial covenants as of March 31, 2022.

As of June 30, 2022, $18 million was drawn down by the consolidated fund under the credit facility with an interest rate of Prime (with a Prime Floor of 3%).

The fund was in compliance with all financial covenants as of June 30, 2022.

Condensed Consolidated Cash Flows

1 unchanged sentence

Condensed Consolidated Cash Flow Summary

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

8 unchanged sentences

Repurchases of common shares (151) (88) (303) (165)

Issuance of long-term debt, net of issuance costs — 495 — 495

Other 4 (2) (6) (14)

8 unchanged sentences

(2) Claims paid on consolidated FG VIEs are presented in the condensed consolidated statements of cash flows as a component of paydowns on FG VIEs’ liabilities in financing activities as opposed to operating activities.

Cash flows from operations, excluding the effect of consolidating VIEs, was an outflow of $640 million in First Quarter 2022 and an outflow of $42 million in First Quarter 2021.

The increase in cash outflows during 2022 was primarily due to claim payments made net of cash recoveries received in connection with the March Puerto Rico Resolutions.

Cash flows from operations, excluding the effect of consolidating VIEs, was an outflow of $621 million in six months 2022 and an inflow of $46 million in six months 2021.

The increase in cash outflows during 2022 was primarily due to claim payments made net of cash recoveries received in connection with the March Puerto Rico Resolutions and higher tax payments.

Financial Statements, Note 3, Outstanding Exposure, for additional information.

4 unchanged sentences

Financing activities primarily consist of share repurchases, dividends, and paydowns of FG VIEs’ liabilities, as well and CLO issuances and CLO warehouse financing activities.

The decrease in financing cash flow activity from VIEs was primarily due to First Quarter 2021 including the consolidation of an additional CLO and securitization of a previously consolidated CLO warehouse.

The slight increase in financing cash flow activity from VIEs was primarily due to the consolidation of an additional CLO and securitization of a previously consolidated CLO warehouse.

Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

From March 1 through May 5, 2022, the Company repurchased an additional 1.0 million of common shares.

As of May 5, 2022, the Company was authorized to purchase $240 million of its common shares.

From July 1 through August 3, 2022, the Company repurchased an additional 0.6 million of common shares.

As of August 3, 2022, the Company was authorized to purchase $365 million of its common shares.

For more information abou t th e Company’s share repurchases and authorizations, see Item 1, Financial Statements, Note 14, Shareholders’ Equity.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2022, there were no material changes to the market risks to which the Company is exposed since December 31, 2021.

As of June 30, 2022, there were no material changes to the market risks to which the Company is exposed since December 31, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis